# Commerce for IAS – Answering a Practical Problem in UPSC

## Practical Illustration:

### Illustration I

From the following particulars calculate the cost of Job No.505 and price for the job to give a profit of 25% on the selling price.

Material : Rs. 6820

Wage details: Department wise:

X : 60 hrs @ Rs. 3 per hr Y : 50 hrs @ Rs. 3 per hr Z : 30 hrs @ Rs. 5 per hr

The variable Overheads are as follows: Department wise:

X : Rs. 5000 for 5000 hrs Y : Rs. 4000 for 2000 hrs Z : Rs. 2000 for 500 hrs.

The total fixed expenses amounted to Rs. 20,000 for 10,000 working hours.

Calculate the cost of Job No. 505 and price for the job to give a profit of 25% on selling price.

### Solution

The question pertains to Job Costing – A popular method of costing used in Job Order Industries.

The cost of completed job will be the materials used for the job, the direct labor employed for the same and the production overheads and other overheads if any charged to the job.

Based on the given problem:

 Particulars Working Amount (Rs.) Direct Material 6820 Wages Deptt X – 60*3 180 Deptt Y – 50*3 150 Deptt Z – 30*5 150 Variable Overhead Deptt X – 60*1 60 Deptt Y – 50*2 100 Deptt Z – 30*4 120 Fixed Overhead Total Hrs (140) * Absorption Rate (2/-) 280 ( Absorbed @ 2/- per hr) Total Cost 7860 (A) Profit Margin 25% on sales or 1/3rd of Cost 2620 (B) Selling Price 10480 (A)+(B)

Hence, the selling price should be Rs. 10,840 /-